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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Wednesday March 26, 2008.
As we've noted in the previous Market Outlook: "short-term charts exhibit a very positive character that should help setting the stage for further short-term gain" - stocks took a breather Tuesday amid a batch of weak economic news, yet it managed to overcome early weaknesses and finish the day in positive territory. Contributed to the early selling pressure was Merrill Lynch's downgrade of several banking stocks, including Bank of America (BAC). Also, Merrill Lynch had its earnings forecast cut by JP Morgan Chase (JPM) and UBS (UBS). The KBW bank index finished lower, down 0.44%, as a result.
Chart 1.1 – KBW bank index (daily).
The overall technical outlook remains bearish for two reasons: first of all, price still traded below the falling trend-line resistance going back to last October. Secondly, Tuesday's downside follow-through after Monday's failure test of key resistance had increased the odds that the lower low and lower high pattern is still in play. This doesn't mean that it can't be changed. Though until we see a sustain advance above the key price level, about 90, there is no high-confidence signal that an important bottom has been made - yet.
In addition, the short-term relative strength index, or RSI, indicator had reached the overbought level, so we wouldn't be surprised to see some sorts of weaknesses in the days ahead. The index has a layer of support that runs from 82 to 73.
Bad news surrounding the financial stocks offset the board market advance – the S&P 500 tacked on just 3 points, or 0.2% for the day.
Chart 1.2 – S&P 500 index (daily).
The main event here is the upward push against key resistance at the area of the 50-day moving average. Not only that this is a tough resistant to overcome, the trading volumes over the last two sessions are at the lowest level since late February. And this is the exact opposite of what the bulls want to see. With that said, there is a pretty good chance that we'll be getting some consolidation before a meaningful rally is in play.
In summary: while the up-leg started from last Monday's low seems to have run out of steam, the short-term trend remains up and the charts are still building on encouraging formations. Though there just isn't enough bullish power to fuel a significant push upward from here. With all that said, the market needs some sorts of positive catalysts and a good consolidation to build up the needed energy.
Until next time, good luck.
(By: Michelle Mai for Capital Essence)
(By: Michelle Mai for Capital Essence)
Note: Michelle Mai writes technical analysis for Capital Essence and is the editor of Capital Essence's "Market Outlook" newsletter. To receive the daily edition, please subscribe. It's now available at a monthly rate.
